More cattle on feed and less cold storage

The latest Cattle on Feed (COF) report showed feedlot inventories (among feedlots with 1,000 head or more capacity) on April 1 of 10.853 million head, 100.5 percent of year ago levels. March feedlot marketings were 107 percent of last year and placements were 104.6 percent of year earlier placements. There was one more business day in March 2016 compared to one year ago. There were no major surprises in the report but it could be considered mildly bullish with placements on the low end of expectations. Nevertheless, this is the second month of year over year increases in feedlot placements; a trend that will continue as feeder supplies continue to grow in the coming months.

The COF report showed larger placements in the Texas, Oklahoma and Colorado compared to Iowa and Nebraska. All of the increase in March placements were feeders over 700 pounds with the largest increase in feeders 700-800 pounds. These cattle will hit the market mid to late third quarter and in the fourth quarter of the year.

This report also included the quarterly breakdown of steers and heifers on feed and indicates some changes. The total inventory of heifers on feed on April 1 was up 4.5 percent year over year. This is the first increase in quarterly heifers on feed inventory in 14 quarters, since July of 2012. This likely reflects both a growing heifer supply and some slowdown in heifer retention. Herd expansion is likely still occurring, but at a slower pace in 2016. In contrast, the inventory of steers in feedlots on April 1 was down 1.3 percent from one year ago. This is the first year over year decrease in quarterly steer inventory in feedlots since July 2014. This follows the dramatic increase in steers on feed in 2015 that coincided with delayed marketings and a sharp increase in carcass weights. Though the current steer inventory in feedlots is still large, the decrease in quarterly supplies is a good sign that feedlots are moving steers at a more timely pace this year. Steer carcass weights are currently about 12 pounds heavier year over year while heifer carcasses are running about 10 pounds more than one year ago. However, both steers and heifer carcass weights have decreased seasonally in April.

The monthly Cold Storage report was also released by USDA on Friday. The report indicated that cold storage supplies of beef continued to decline in March. This follows considerable concern that developed in January as beef in cold storage reached the highest monthly totals since November 2006. Cold storage inventories are indicative of market conditions and may reflect changing short term beef demand conditions and changing beef imports and exports.

However, I think there is often misunderstanding of the role of cold storage and the implications of changing cold storage levels. I received many questions early in the year about whether cold storage supplies of beef were a major supply issue. Some producers wondered whether the recent record inventories meant that we had multiple years of beef supply in cold storage. It’s important to understand that cold storage inventories of beef represent a minimal pipeline level of supplies in the industry from month to month. The average monthly supply of beef in cold storage in 2015 was less than 2 percent of total beef disappearance for the year. The build-up of cold storage in 2015 was a useful indicator of sluggishness in beef movement (especially certain products) and large beef imports but was not, by itself, a major supply factor.